BIM46355 - Specific deductions: pre-trading expenditure: relief

Relief under ICTA88/S401 in respect of pre-trading expenditure is only available to the person who incurred the expenditure and commences the trade.

It should be given as follows:

(A) For income tax purposes

Where the qualifying trade was set up and commenced before 6 April 1995, the qualifying pre- trading expenditure should be treated as a trading loss for the year of assessment in which the trade is set up and commenced, but separate and distinct from any actual trading loss or profit made after the trade profession or vocation has started. The pre-trading 'loss' does not, therefore, enter into the computation of the amounts assessable for the commencing years, and a separate claim for loss relief should be made in respect of it.

Where the qualifying trade was set up and commenced on or after 6 April 1995 the qualifying pre-trading expenditure should be treated as incurred on the day on which the trade, profession or vocation is first carried on. It therefore enters into the calculations of the profit or loss for the first year of assessment in which the trade profession or vocation is first carried on. No separate claim for loss relief is required.

The pre-trading loss is available for relief in the normal way:

1. for set-off against general income (ICTA88/S380 - BIM75000 onwards),

or

2. for set-off against general income for earlier years (ICTA88/S381 - BIM75450 onwards),

or

3. for carry forward against subsequent profits (ICTA88/S385 - BIM75500).

(B) For CT purposes

The qualifying pre-trading expenditure should be treated as incurred on the day on which the trade is first carried on (ICTA88/S401 (1)). It therefore enters into the calculation of the trading profit or loss for accounting period on which the trade starts.

For trades which commenced on or after 1 April 1993, where:

• a company has paid charges on income prior to the commencement of the trade, and
• such charges are paid wholly and exclusively for the purpose of the trade,

to the extent that they have not otherwise been relieved they will be treated as if they were paid on the first day of trading.

For a partnership involving companies

Where the qualifying pre-trading expenditure is incurred by a partnership involving companies, ICTA88/S114 (1)(b) provides that expenditure shall be first excluded (in the same way as capital allowances) from the computation under ICTA88/S114 (1). The pre-trading expenditure should then be apportioned separately to the partners, with the part apportioned to a company partner being treated as in (b) above, and the part apportioned to an individual partner being treated as in (a) above.